Welcome to The Business Academy with Sieva Kozinsky. Here's what we have in store for you today:

1. A secret weapon for compounding
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2. How to buy and manage hundreds of millions in real estate
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3. $9 million hotel...why not?

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New Speaker Announcement!

Walker Deibel is speaking at the Enduring Ventures Duration 2025. Walker is the author of the WSJ Best Seller, Buy Then Build. This is an exciting announcement for me because I got my start by reading Walker's book. Buy Then Build is the bible of buying small businesses. I recommend it to anyone who is interested in buying a company.

If you want to spend time with Walker, and 50 other talented capital allocations, and holding company owners over 3 days on the coast in Maryland, sign-up. We're holding space for a few loyal readers from my newsletter. If you're interested, apply here.

Do you manage 5+ bank accounts across multiple businesses? Me and my finance team used to spend hours each week checking each bank account balance. It was a pain…

Then my friend introduced me to Vesto.

Vesto made it easy to connect all of our banks into one simple dashboard. With real-time balances, transactions, and cash flow monitoring – we went from 50 account logins to one.

For any company managing multiple banks, Vesto is a no-brainer

Thanks to Vesto for sponsoring today's newsletter

​Check out Vesto here​

You need to know this powerful business concept.

It's called the Float.

The float is the sum of money that certain companies collect upfront, and only have to pay out later.

Insurance companies are the classic example. They collect monthly premiums, and only have to pay portions of that money out later when their customers file claims.

In the meantime, they get to hold onto that capital and invest it. That sum is often billions for large insurance companies.

The float creates a unique financial advantage, essentially acting as an interest-free loan that savvy businesses can invest to generate additional profits.

If managed well, the returns from these investments can exceed the cost of eventual payouts, making the float a profit engine rather than just a liability.

Warren Buffett is obsessed with float. He famously called it “the secret sauce” of his conglomerate’s financial strategy.

Buffett loves float for several reasons:

1. Leverage Without Cost: Unlike debt, float doesn’t come with interest payments. It’s essentially free money that Berkshire Hathaway can use to amplify its investment returns, as long as the insurance operations are underwritten profitably (i.e., premiums exceed claims and expenses over time).
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2. Compounding Power: Buffett uses float to fuel long-term investments, particularly in undervalued stocks or entire businesses. Over decades, this has allowed Berkshire to compound wealth at an extraordinary rate. For instance, he’s noted that Berkshire’s float grew from $19 million in 1967 to over $163 billion by 2023.
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3. Stability and Scale: Insurance float is relatively predictable and renewable. As long as the insurance business keeps writing new policies, the float keeps flowing in, providing a steady stream of capital. Buffett has praised this stability, saying, “Float is a little like forest timber—it grows over time if you don’t cut it down.”
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4. Competitive Edge: Companies with large, low-cost float, like Berkshire’s insurance subsidiaries (GEICO, National Indemnity, etc.), have a moat that’s hard to replicate. Buffett has said, “If you’ve got a wonderful business, float is the money that keeps it wonderful.”

Starbucks is another prime example of this concept: As of last year, Starbucks held over $1.7 billion in cash that customers had paid for gift cards but not yet redeemed. They earn tens of millions of interest on this money.

And Starbucks is unique in how they've conditioned customers to constantly refill their Starbucks app with $25 or $50 at a time. You never see people do that with any other food or beverage chain.

Here's another example of the float in action.

One of Buffett's first investments that took advantage of the float was Blue Chip Stamps.

Blue Chip Stamps distributed stamps through grocery stores and retailers which customers could collect and exchange for merchandise. Think of this like Starbucks Loyalty rewards today. The more coffee you buy, the more points you get, which you can later redeem for more Starbucks products.

Blue Chip was just a paper version of the Starbucks loyalty app.

Here's what made Blue Chip Stamps a great investment:

Berkshire's team noticed there was a difference between the volume of stamps purchased and redeemed.

Blue Chip Stamps kept this money in the bank at the ready for their customers to use. But the beauty of this was only 50% of stamps ever got redeemed.

In 1970 the company market cap was $63.5 million.

The unredeemed stamps were $86mil. Since only half the stamps got redeemed, this $86m had a value of $43m to the company.

And the company also held $72mil of investment securities.

You could buy $115mil of value for $63.5mil. This was the dictionary definition of value investing.

And the Berkshire team only needed 60% of the company ($38mil) to control the investments of the company.

After buying 60% of the company, they used the "float" of Blue Chip Stamps to buy See's Candy with $25 million. Then they bought Wesco Financial for $25 million.

See's Candy alone went on to generate over $2 Billion of income for Berkshire to-date. Wesco Financial has a market cap of $7 Billion. These were three transformative investments for Berkshire Hathaway.

The Lessons: Collect money upfront for services you render later. Your balance sheet and cash flow statement will thank you.

🔑 One interesting story

Last week I talked with a brilliant real estate operator, Moses Kagan.

He told me how he bought one rundown, half-renovated apartment building when the old owner ran out of money - then turned that into an empire of hundreds of millions in multi-family real estate.

Moses has incredibly clear thinking around investing, operating, and managing assets. If you're interested in investing, watch this interview. So many people are watching it, this one may be one of my most viewed interviews yet. I've listened to it TWICE already!

​Watch it here​

🔑 One interesting deal

Here's a cool business for sale near the beach. Let's take a look:

What I like

We've been getting into the hotel business lately, and we love it. But you have to proceed very carefully. I've seen wealth vaporize when amateur buyers move into buying real estate without experience.

They're asking for $1.5m for the business, with the real estate valued at $7.5 million. That's a very attractive multiple for the business itself (about 2x). Of course, I'd want to verify the value of the real estate myself.

The reason we like buying hotels is because we have an operating company that is proven to be very successful with hotels. So before you buy a hotel, you need to be confident in your ability to run it and pay the debt payments.

If you feel comfortable with it, you can use an SBA 504a loan. Which is similar to the SBA 7a loan you see me talking about, but designed for real estate (up to $10M). You can get away with ~10% down payment if you get the owner to take a full standby seller note.

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What I don't like

A few things to look into:

Insurance costs. We all know property insurance, especially right by the ocean in a state that recently got hit by a major hurricane, is rising quickly. I'd want to figure out how much cash flow might decrease this year thanks to rising insurance costs when the policy resets.

Hotel supply. How many hotels have been added in recent years to this year. How many more are slated to be built. More supply in a location can kill the value of your hotel.

Remodel needs. How much will it cost you to get your hotel up to the specs you need to charge the prices you want?

The listing notes that the business does not qualify for an SBA loan, I'm not sure why that is. Worth exploring.

​Check out the listing here​

Have a great week,

Sieva

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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.

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